SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended September 30, 1994
Commission file number 0-10972
First Farmers and Merchants Corporation
(Exact name of registrant as specified in its charter)
Tennessee 62-1148660
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
816 South Garden Street
Columbia, Tennessee 38402 - 1148
(Address of principal executive offices) (Zip Code)
(615) 388-3145
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the
issuer's common stock, as of September 30, 1994. 1,400,000
shares
This filing contains 11 pages.
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
The following unaudited consolidated financial statements of
the registrant and its subsidiary for the six months ended
September 30, 1994, are as follows:
Consolidated balance sheets - September 30, 1994, and December
31, 1993
Consolidated statements of income - For the three months and
six months ended September 30, 1994, and September 30, 1993
Consolidated statements of cash flows - For the six months ended
September 30, 1994, and September 30, 1993
<TABLE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
September 30 December 31
1994 1993
ASSETS
<S> <C> <C>
Cash and due from banks $ 24,249,634 $ 22,642,168
Federal funds sold 0 400,000
Securities
Held to maturity (market
value $141,214,754 and
$126,824,320, respectively) 142,854,430 122,016,587
Available for sale (amortized
cost $13,635,796 in 1994 and
market value $28,512,178 in
1993) 13,647,199 28,093,708
Total securities 156,501,629 150,110,295
Loans, net of unearned income 255,344,492 243,915,462
Allowance for possible loan
loss (2,284,955) (2,023,651)
Net loans 253,059,537 241,891,811
Bank premises and equipment,
at cost less allowance
for depreciation and
amortization 6,281,412 6,363,539
Other assets 10,666,255 11,188,893
TOTAL ASSETS $450,758,467 $432,596,706
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Non-interest bearing $ 54,998,156 54,302,635
Interest-bearing (including
certificates of deposit
over $100,000: 1994 -
$24,031,062; 1993 -
$25,104,901) 342,897,585 334,632,442
Total deposits 397,895,741 388,935,077
Dividends Payable 0 525,000
Accounts payable and
accrued liabilities 9,866,475 3,729,056
TOTAL LIABILITIES 407,762,216 393,189,133
STOCKHOLDERS' EQUITY
Common stock - $10 par value;
authorized 4,000,000 shares;
1,400,000 shares issued
and outstanding 14,000,000 7,000,000
Retained earnings 28,989,409 32,435,258
Realized stockholders' equity 42,989,409 39,435,258
Net unrealized gains (losses)
on securities available for
sale 6,842 (27,685)
TOTAL STOCKHOLDERS' EQUITY 42,996,251 39,407,573
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $450,758,467 $432,596,706
UNAUDITED (A)
</TABLE>
(A) The Consolidated Balance Sheet at December 31, l993, has
been
taken from the audited financial statements at that
date.
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
(Unaudited)
<TABLE>
Three Months Ended Nine Months Ended
September 30 September 30
<CAPTION>
1994 1993 1994 1993
OTHER EXPENSES
<S> <C> <C> <C> <C>
Salaries and employee benefits $1,534,157 $1,449,799 $4,577,545 $4,265,750
Net occupancy expense 302,500 247,605 928,976 762,240
Furniture and equipment expense 245,704 215,153 723,626 660,293
Loss on other real estate - - 4,000 9,322
Other operating expenses 1,218,212 1,174,056 3,592,523 3,597,323
Total Other Expenses 3,300,573 3,086,612 9,826,670 9,294,928
Income Before Provision
for Income Taxes 1,826,566 1,849,802 5,704,225 5,651,916
Provision For Income Taxes 508,942 574,118 1,604,073 1,744,453
$1,317,624 $1,275,684 $4,100,152 $3,907,463
Net Income (A)
EARNINGS PER COMMON SHARE (B) $ 0.94 $ 0.91 $ 2.93 $ 2.79
(1,400,000 outstanding shares)
</TABLE>
(A) The information furnished reflects all adjustments which
are, in the opinion of management, necessary for a fair statement
of the results of operations. These interim amounts are unaudited.
(B) All EPS information has been restated to give retroactive
effect to the 100% stock dividend paid to shareholders of record on April 12,
1994.
<TABLE>
FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1994 and 1993
1994 1993
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 4,100,152 $ 3,907,463
Adjustments to reconcile net
income to net cash provided
by operating activities
Excess of provision for
possible loan losses over
net charge offs 261,304 (97,861)
Provision for depreciation
and amortization of premises
and equipment 398,968 424,696
Amortization of deposit base
intangibles 126,015 126,015
Amortization of investment
security premiums, net of
accretion of discounts 436,416 520,650
Increase in deferred
tax asset (133,969) 0
(Increase) decrease in
Interest receivable (781,218) 116,066
Other assets 1,346,336 (1,920,494)
Increase (decrease) in
Interest payable (15,206) (312,946)
Other liabilities 761,666 602,581
TOTAL ADJUSTMENTS 2,400,312 (541,293)
NET CASH PROVIDED BY
OPERATING ACTIVITIES 6,500,464 3,366,170
INVESTING ACTIVITIES
Proceeds from maturities and
calls of investment securities 23,945,793 24,010,270
Purchases of investment
securities (30,773,543) (22,522,353)
Net increase in loans (11,429,030) (16,730,946)
Purchase of premises and
equipment (316,840) (192,299)
NET CASH USED BY INVESTING
ACTIVITIES (18,573,620) (15,435,328)
FINANCING ACTIVITIES
Net increase in noninterest-
bearing and interest-bearing
deposits 8,960,664 11,489,288
Net decrease in short term
borrowings 5,390,958 (5,459)
Cash dividends (1,071,000) (966,000)
NET CASH PROVIDED BY
FINANCING ACTIVITIES 13,280,622 10,517,829
INCREASE IN CASH AND
CASH EQUIVALENTS 1,207,466 (1,551,329)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 23,042,168 28,948,384
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 24,249,634 $ 27,397,055
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition
</TABLE>
Material Changes in Financial Condition
Average total assets were $451 million for the first nine
months of 1994 compared to $416 million for the first nine
months of 1993. Period-end assets were $450.7 million and
$432.5 million and $424.9 million at December 31, 1993, and
September 30, 1993, respectively. The following sections
analyze the average balance sheet and the major components of
the period-end balance sheet.
SECURITIES At September 30, 1994, the Corporation's investment
securities portfolio was $156.5 million compared to $150.1
million and $139.6 million at December 31, 1993, and September
30, 1993, respectively. The liquidity portion of the securities
portfolio, $13.6 million or 9% of the total portfolio, is an
integral part of the asset/liability management process. As
such, it represents an important source of liquidity available
to fund loans and accommodate asset reallocation strategies
dictated by changes in bank operating and tax plans, shifting
yield spread relationships, and changes in configuration of the
yield curve. Items held for these purposes were classified as
"available for sale" after the adoption of Financial Accounting
Standards No. 115 (SFAS 115), "Accounting for Certain
Investments in Debt and Equity Securities", and are reported at
fair value, with unrealized gains and losses excluded from
earnings and reported as a separate component of stockholders'
equity. Net unrealized gains on securities available for sale
were $7 thousand at September 30, 1994. The management of the
Corporation's subsidiary bank has the positive intent and
ability to hold to maturity the balance of the securities
portfolio and these securities are reported at amortized cost.
The balance of held to maturity securities at September 30,
1994, was $142.8 million. The liquidity position of the
Corporation's subsidiary has remained strong.
LOANS The average loan portfolio of the Corporation's subsidiary
increased $11.7 million or 5% in the first nine months of 1994
compared to a $16 million or 7.5% increase in the first nine
months of 1993. Commercial loans posted the largest increase
compared to December 31, 1993, and September 30, 1993, with
loans secured by real estate holding steady with approximately
.9% growth for the first nine months of 1994 and 1.2% growth
compared to September 30, 1993.
The Corporation's subsidiary loan review function and Special
Assets Committee reviewed over 51% of the average dollar value
of the loan portfolio during the first nine months of 1994.
After this review, loans totaling $2.3 million, .9% of the
portfolio, were classified as other assets especially mentioned
at September 30, 1994, which is down from the $5.3 million so
classified at December 31, 1993. Loans totaling $13.3 million,
5.25% of the portfolio, were classified as substandard at
September 30, 1994, compared to $3.5 million so classified at
December 31, 1993. Loans totaling $.6 million, .2% of the
portfolio, were classified as doubtful or loss at September 30,
1994, compared to $.5 million at December 31, 1993. Any loans
classified for regulatory purposes as loss, doubtful,
substandard, or special mention do not represent or result from
trends or uncertainties which management reasonably expects will
materially affect operating results, liquidity, or capital
resources. Neither do such loans represent material credits
about which management is aware of any information which causes
management to have serious doubts as to the ability of such
borrowers to comply with the loan repayment terms. Management
is not aware of any known trends, events or uncertainties that
will have or that are reasonably likely to have a material
effect on the corporation's liquidity, capital resources or
operations. Loans totaling $1.3 million, .5% of the total
portfolio, were nonperforming at the end of the first nine
months of 1994 compared to $2.3 million and $2.1 million at
December 31, 1993 and September 30, 1993, respectively.
Nonperforming loans are those which are accounted for on a
non-accrual basis. Interest accruals are discontinued when, in
the opinion of management, it is not reasonable to expect that
such interest will be collected.
DEPOSITS Average deposits of the Corporation's subsidiary were
$404.8 million for the first nine months of 1994 compared to
$378.8 and 374.7 for the year ended December 31, 1993 and for
the first nine months of 1993, respectively. Average rate
sensitive time deposits increased 5.4% for the period ending
September 30, 1994, compared to an 8.9% increase for the period
ending September 30, 1993.
CAPITAL Average shareholders' equity was $41.2 million at
September 30, 1994, compared to $36.9 million at September 30,
1993, an increase of 11.6%. Average shareholders' equity
increased 9.9% during the first nine months of 1994 compared to
an increase of 10.4% during the first nine months of 1993. Most
of the capital needs of the Corporation's subsidiary bank have
historically been financed through internal growth.
At September 30, 1994, the Corporation had an equity capital to
asset ratio of 9.1% compared to a 8.8% ratio at September 30,
1993 and an 8.9% ratio at December 31, 1993. At the close of
the first nine months of 1994, additional dividends of
approximately $11.3 million to the Corporation could have been
declared by the subsidiary bank without regulatory agency
approval.
Regulatory risk-adjusted capital adequacy standards were
strengthened during 1993. Equity capital (net of certain
adjustments for intangible assets and investments in
non-consolidated subsidiaries)and certain classes of preferred
stock are considered Tier 1 ("core") capital. Tier 2 ("total")
capital consists of core capital plus subordinated debt, some
types of preferred stock, and varying amounts of the Allowance
for Possible Loan Losses. The minimum standard for a "well
capitalized" bank is a risk-based core capital ratio of 6%, a
risk-based total capital ratio of 10%, and a core capital to
average total assets ratio of 5%. As of September 30, 1994,
the Bank's core and total risk-based ratios were 16.6% and 17.5%
respectively. The comparable ratios were 15.6% and 16.4% at
year end, 1993. At September 30, 1994, the Bank had a ratio of
average core capital to average total assets of 9% compared to
8.6% at December 31, 1993.
Material Changes in Results of Operations
During the first nine months of 1994, the Corporation's
consolidated income totaled $4.1 million compared to $3.9
million for the first nine months of 1993. The Corporation's
total interest income during the first nine months of 1994 was
$22.6 million compared to $21.5 million during the first nine
months of 1993. This was a increase of 5.2%. Loan income was
up 5.4%, while investment income showed an increase of 4.9%.
Interest expense increased 4.2% during the first nine months of
1994. The net interest margin (tax equivalent net interest
income divided by average earning assets annualized) for the
nine months ended September 30, 1994, was 4.6%, the same as it
was for the corresponding period in 1993.
The provision for loan losses was $540,000 for the first nine
months of 1994 compared to $440,000 for the first nine months of
1993, which was a 22.7% increase. The amount of the additions
to the allowance for loan losses charged to operating expenses
was based on the following factors: (a) national and local
economic factors; (b) past experience; and (c) Loan Review and
Special Assets Committee review. Net charge offs for the first
nine months of 1994 were $278,696, or .11% of average net loans,
compared to $537,861, or .22% of average net loans for the first
nine months of 1993. The ratio of net charge offs to net
average loans outstanding has been less than .5% for the last
five years and below the usual ratio for the industry.
The $4,000 expense entitled Loss on Other Real Estate for the
first nine months of 1994 compares to a $9,322 expense for the
first nine months of 1993. These expenses were a result of
write-downs associated with declines in real estate values
subsequent to foreclosure and disposition of the properties at
less than their carrying value. The carrying value of Other
Real Estate is included in other assets on the face of the
balance sheet and represents real estate acquired through
foreclosure and is stated at the lower of cost, loan value, or
appraisal value. An allowance for other real estate owned is
not maintained. Historically, and at the present time, parcels
have not remained in this category for long periods of time and
any decreases or losses associated with the properties have been
charged to current income. Management evaluates properties
included in this category on a regular basis. Actual
foreclosures are included in the carrying value for Other Real
Estate at September 30, 1994, and total $555,540 which compares
to $594,693 and $918,375 at December 31, 1993, and September 30,
1993, respectively.
Non-interest income decreased 2.3% during the first nine months
of 1994 compared to the same period of 1993. Other fee income
from the sale of mortgage loans in the secondary market is
included in this total and decreased over 21%. Non-interest
expense increased 5.7% during the first nine months of 1994
compared to the same period of 1993. The largest increase was
in salaries and benefits expense which increased 7.3%.
The unaudited consolidated financial statements have been
prepared on a consistent basis and in accordance with the
instructions to Form 10-Q and do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments considered necessary for
a fair presentation have been included. For further
information, refer to the consolidated financial statements and
footnotes included in the Corporation's annual report on Form
10-K for the year ended December 31, 1993.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
FIRST FARMERS AND MERCHANTS CORPORATION
(Registrant)
Date August 13, 1994 /s/ Waymon L.
Hickman Waymon L. Hickman,President
(Chief Executive Officer)
Date August 13, 1994 /s/ Patricia N.
McClanahan Patricia N.
McClanahan,Treasurer
(Principal Accounting Officer)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
FIRST FARMERS AND MERCHANTS CORPORATION
(Registrant)
Date August 13, 1994
Waymon L. Hickman, President
(Chief Executive Officer)
Date August 13, 1994
Patricia N. McClanahan,Treasurer
(Principal Accounting Officer)
